It’s a world-class resource, says a Rio/Russian JV. But part of it’s held by Western Potash

by Greg Klein

Rio Tinto NYE:RIO rates the southeastern Saskatchewan potash project “Tier 1,” one of eight such discoveries the global giant has made over the past 10 years. Last month’s announcement sparked media interest in KP 405, the company’s joint venture with North Atlantic Potash, a subsidiary of one of the world’s largest mineral fertilizer producers. But how much of KP 405’s resource—if it can be called a resource—does the JV actually control? North Atlantic hasn’t responded and Rio’s not talking, but next-door neighbour Western Potash TSX:WPX certainly is. The company maintains it owns rights to a sizeable portion of KP 405.

Western Potash holds the adjacent Milestone project, which reached full feasibility in December 2012 and final environmental approval in April 2013. Western Potash also holds rights to roughly a third of KP 405’s freehold land in what VP of corporate finance Patrick Power calls “a checkerboard pattern.” According to an April 10 news release, Western Potash has leased freehold potash mineral rights for 100% of 20,523 hectares on 46 parcels of land, and less than 100% on 3,588 hectares on 49 parcels, for a total of 24,111 hectares within KP 405. The leases run for 10 years from their execution date with an optional 10-year extension.

“It’s happened before with companies, usually smaller, not Rio Tinto-sized companies,” Power tells ResourceClips.com. “They forget that when you’re granted Crown ground in this part of the world, you still need rights to the freehold. It’s on a checkerboard basis. It’s almost impossible to mine that without having an agreement with us or taking us over. Those are the two options they have. The other is to back away.”

The Rio Tinto/North Atlantic “Tier 1” project is overlain by Western Potash holdings.

A Saskatchewan government official says, “I wouldn’t be surprised to hear that one potash company owns mineral rights in another potash company’s area.” Executive director of Lands and Mineral Tenure for Saskatchewan’s Ministry of the Economy Doug MacKnight explains, “When the land was first being settled the railway got some mineral rights, the Hudson’s Bay Company got some mineral rights and the early homesteaders got some mineral rights. Throughout southern Saskatchewan about 15% to 20% of the mineral rights are privately owned, but it’s not an even distribution.”

“Especially in that area of Saskatchewan, you’re going to get a mix of Crown and freehold ownership and it’s not in a contiguous block. It’s in a checkerboard pattern. So it would not surprise me in the least that one company could hold the potash rights from the Crown in a township and other private owners may have a variety of private rights.”

But if Rio and North Atlantic don’t hold all of KP 405, do they have a resource? North Atlantic, a subsidiary of Russian fertilizer giant JS Acron, announced KP 405’s “world-class potash resource” in early December. That report wasn’t distributed in Canada or Australia but in March Rio released its 2013 Strategic Report listing eight Tier 1 discoveries since 2004. That’s when KP 405 came to the attention of Canadian and Australian media.

North Atlantic outlines its “resource” as an inferred 1.4 billion tonnes of potash averaging 31% potassium chloride (KCl). The company doesn’t refer to an NI 43-101 report, although a “resource summary” states that a qualified person “has certified that the report contains all substantive information that would be required to be included in a 43-101 report.” Anyone wanting further details must sign a non-disclosure agreement for “access to the original exploration data and resources report,” North Atlantic states.

Making what might be considered a rather bold statement for an inferred category, North Atlantic also states “the current resource could support an operation for many years.”

The document adds, “The mineral tenure is secured as both Crown rights and agreements with freehold owners of mineral rights.”

Western Potash, however, has produced a map showing otherwise. Power speculates that Rio didn’t learn about the mixed ownership until after it teamed up with North Atlantic in 2011. “Rio’s been drilling on quarter sections that they own, literally metres from our properties.” But the minerals below can hardly be mined in quarter sections, he points out.

MacKnight emphasizes that mixed ownership doesn’t prevent mining. “You just have to deal with the owners. If you want to produce it you have to negotiate it…. Historically it has not been an impediment. Everybody’s interested in seeing mines built.”

By press time Rio’s principal adviser for media relations Bruce Tobin and North Atlantic CEO David Waugh had not replied to interview requests.

Disclaimer: Western Potash Corp is a client of OnPage Media Corp, the publisher of ResourceClips.com. The principals of OnPage Media may hold shares in Western Potash.